By Lesley Sotolongo
Internships have become increasingly important not only in academic curriculums, but also for any jobseeker wanting to gain work experience to boost his or her resume. It is both an avenue of recruitment and a source of human capital for employers. However, interns are often unpaid and only receive academic credit for their work. While these positions have been traditionally perceived as offering students with opportunities and professional experiences, there has recently been a boom in the amount of lawsuits being brought forth by interns against their former employers arguing that they should be compensated for their work. In fact, one intern’s victory has fueled a class action and student protests against their university’s internship guidelines, demanding pay. For example, students at New York University (NYU) expressed their concerns about being offered only unpaid for-profit internships, and as a result NYU’s Wasserman Center for Career Development issued a statement that going forward the opportunities posted to its jobs board would comply with New York Wage and Labor laws, further details of which are described below. With funding coming mostly from programming or grants, arts organizations may find it tempting to rely on interns to perform some of its key logistical functions. However, in the wake of the recent controversy, employers are on notice to familiarize themselves with both federal and state wage laws.
As a result of the issue gaining national recognition, the Department of Labor in 2010 issued guidelines employers should follow to comply with FLSA, which states that unpaid internships are legal only in stringently outlined educational settings.
The six criteria are:
- the internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment
- the internship experience is for the benefit of the intern
- the intern does not displace regular employees, but works under close supervision of existing staff
- the employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded
- the intern is not necessarily entitled to a job at the conclusion of the internship, and
- the employer and intern understand that the intern is not entitled to wages for the time spent in the internship program.
In 2011, a group of unpaid interns brought a class action against Fox Searchlight under the Fair Labor Standards Act (“FLSA”), New York Labor Law (“NYLL”), and California Unfair Competition Law (“CAUCL”), alleging that defendants violated federal and state labor laws by classifying them as unpaid interns instead of paid employees. Specifically, the FLSA mandates that individuals who are employed must be compensated for the services they perform. In Glatt v Fox Searchlight Pictures Inc., Judge William H. Pauley III sitting in the Southern District of New York ruled that interns were employees covered by FLSA and NYLL. Therefore, Fox Searchlight Pictures was considered to have violated federal and state minimum wage laws by not paying the interns. This case is controversial as its ruling has an impact on how employers manage its unpaid internship programs. Additionally, Judge Pauley III stated that whether the student was receiving academic credit was not important in determining whether interns should be paid. Instead, he called for employers to follow the U.S. Department of Labor’s criteria for unpaid internships.
The U.S. Department of Labor’s guideline is based on the 1947 United States Supreme Court opinion in Walling v. Portland Terminal Co., 330 U.S. 148, 152-53 (1947), which held that the FLSA’s definition of “to employ” as “to suffer or permit to work” does not include student participation in an educational or vocational training program, so long as the employer derives no benefit from the trainees’ work. Almost seventy years ago, the Court cautioned against arrangements “in which an employer has evasively accepted the services of beginners at pay less than the legal minimum.”
Furthermore, understanding these guidelines is crucial for avoiding the increasing amount of lawsuits that have sprung in the wake of Glatt v. Fox Searchlight. However, it is important to note that the FLSA applies to only “for-profit” private sector employers. Non-profit organizations and arts organizations in particular – often strapped for cash and operating on tight budgets – are not included in this law as long as all applicable non-profit incorporation requirements are met.
Moreover, non-profits are subject to state laws that may affect interns. For example, it is possible for non-profit organizations and institutions to have unpaid internships in New York if certain criteria for minimum wage laws are met for interns who are not in an ‘employment relationship’. The criterion for this situation in New York State set out in the is that Students working in a not-for-profit organization are exempt from the State Minimum Wage Act and the Minimum Wage Order for Miscellaneous Industries, so long as the organization is (1) organized and operated exclusively for charitable, educational, religious (2) they attend an institution of learning with courses leading to a degree, certificate or diploma (3) they are completing residence requirements for a degree such as those required of medical and pharmaceutical students and (4) the work experience need not fulfill a curriculum requirement or even relate to the student’s field of study.
Furthermore, the National Council of Nonprofits advises that it’s important to clarify whether interns are ‘unpaid volunteers’ or ‘paid employees’. If a non-profit considers its interns ‘volunteers’ but pays them a ‘stipend,’ there could be unintended negative consequences. Both the FLSA and state wage and hour laws define what constitutes a volunteer. The stipend may trigger the Department of Labor to conclude the intern is an employee, creating the risk that the non-profit could owe back wages (at least minimum wage) and back taxes. On the other hand, if the non-profit is following state wage regulations closely, it may be appropriate to treat the intern as a “trainee”, relieving the non-profit of paying minimum wage, but raising the need to document carefully how the internship primarily benefits the intern and not the non-profit.
In sum, a key takeaway from the fact sheet and cases like Glatt v Fox Searchlight Pictures Inc., is that employers who intend to hire students, should ensure that the internship not only complies with the law, but that the internship also assures that they receive educational benefits other than the usual résumé boost, job reference, and a mere understanding of how the business works. Nevertheless, it is clear that whether for-profit or not, if an employer hires an intern, the employer must make sure that the intern is receiving beneficial training. If and when in doubt about taking interns and assigning them tasks, employers should consult with counsel to ensure compliance with federal and local laws.
Steven Greenhouse, Judge Rules That Movie Studio Should Have Been Paying Interns, available at, http://www.nytimes.com/2013/06/12/business/judge-rules-for-interns-who-sued-fox-searchlight.html?_r=0
Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516 (S.D.N.Y. 2013) on reconsideration in part, 11 CIV. 6784 WHP, 2013 WL 4834428 (S.D.N.Y. Aug. 26, 2013) and motion to certify appeal granted, 11 CIV. 6784 WHP, 2013 WL 5405696 (S.D.N.Y. Sept. 17, 2013).
Christopher Zara, NYU Wasserman Center Bends On Unpaid Internship Guidelines, But Is It Bending Far Enough?, available at, http://www.ibtimes.com/nyu-wasserman-center-bends-unpaid-internship-guidelines-it-bending-far-enough-1555016
Christopher Zara, Are All Unpaid Internships Illegal? Labor Lawyers Explain How Businesses Can Avoid Lawsuits, available at, http://www.ibtimes.com/are-all-unpaid-internships-illegal-labor-lawyers-explain-how-businesses-can-avoid-lawsuits-1352583
About the Author: Lesley Sotolongo, is a third year law student at Benjamin N. Cardozo School of Law. She may be reached at Lesley.Sotolongo@law.cardozo.yu.edu.
Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.